Hambrick and Fredrickson’s Strategy Diamond is a simple means of illustrating how the different parts of a strategy fit together. The diamond creates a strategic direction for the future operations of a business by looking at five elements: arenas, differentiators, economic logic, vehicles, and staging and pacing.
Understanding Hambrick and Fredrickson’s Strategy Diamond
Developed by researchers Donald C. Hambrick and James W. Fredrickson, the strategy is fundamentally a practical approach to strategic plan creation.
Importantly, it seeks to determine a profit-centric strategy by providing a solid foundation of “sub-strategies” which make up the diamond.
The strategy itself applies to any industry or organization where managers need guidance on key strategic decisions.
To assist with these decisions, Hambrick and Fredrickson identified five elements of strategy where a business should focus its efforts.
These elements are:
Arenas
Arenas describe where a businessshould be active. This includes products, markets, technologies, geographic areas, and value-creation strategies.
For example, Nike and New Balance operate in the same product and geographic arenas, but their value-chain arenas differ.
New Balance manufactures its shoes in the United States, while Nike shoes are predominantly manufactured in China, Vietnam, and Indonesia.
Differentiators
Differentiators describe the factors that dictate how the business will achieve success in a given market.
Factors may include price, image, customization, styling, or product reliability.
Differentiators may be tangible, where a golf course with ocean views has a competitive advantage over a course that is further inland.
But they may also be intangible, such as logos, patents, or even brand equity.
Economic logic
Economic logic explains how the business will achieve a return on investment.
Larger companies may rely on economies of scale to see a return, while others may rely on vertical integration or proprietary product features.
For a business to possess positive economic logic, its differentiators must be in alignment with its arenas.
This ensures that financial profits keep investors interested in the continual funding of operating costs.
Vehicles
Vehicles describe how a business can enter the arenas that it determines the most profitable.
Potentially, this may include internal development, franchising, acquisitions, or joint ventures.
Toyota and Mazda came together to jointly own and operate a new car assembly plant in the United States.
Each company will contribute 50% of the establishment cost, and each will share certain technologies to reduce the cost of manufacturing.
Staging and pacing
Staging describes the sequence and speed of potential moves. In other words, how fast can the product be taken to market? When is the right time to begin marketing, advertising, or product expansion?
When a Tex-Mex restaurant chain wanted to expand beyond the city of Austin Texas, the company knew that it would be difficult to manage restaurants that were far away.
Ultimately, cities earmarked for expansion were those that were connected to Austin via a short, direct Southwest Airlines flight. This allowed managers to freely travel between new restaurants in a shorter amount of time.
Key takeaways
Hambrick and Frederickson’s Strategy Diamond is a useful strategic tool in a wide variety of markets, industries, and organizations.
A core belief of Hambrick and Frederickson’s Strategy Diamond is the cohesive and harmonious interaction of five elements: arenas, vehicles, differentiation, staging, and economic logic.
The strategy diamond provides a framework with which a business can envision future success. Importantly, the strategy guides how this success might be achieved in actuality.
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A SWOT Analysis is a framework used for evaluating the business’s Strengths, Weaknesses, Opportunities, and Threats. It can aid in identifying the problematic areas of your business so that you can maximize your opportunities. It will also alert you to the challenges your organization might face in the future.
Gennaro is the creator of FourWeekMBA, which reached about four million business people, comprising C-level executives, investors, analysts, product managers, and aspiring digital entrepreneurs in 2022 alone | He is also Director of Sales for a high-tech scaleup in the AI Industry | In 2012, Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy.
